Pricing Strategies for a Pharmaceutical Firm
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Pricing is the element of marketing mix with the ability to generate turnover for an entity and its development must be in a way that gives business advantage in a competitive environment. Pricing must take into consideration all aspects of the process that a product undergoes to reaching the customer. To produce a product, acquisition of raw material and design of the product need undertaking before the product promotion and distribution to the consumer. Pricing strategy must have reflection of the relationship between supply and demand at any point in time, and if not properly undertaken then an organization fails.
The type of demand for the product or service often dictates the pricing strategy as it must balance all aspects to ensure that the product fits the market range (Bredenkamp, & van 2013). The fixed and variable cost of the product, and the company’s positioning strategies must receive consideration together with company objectives. While introducing a product on the market a company must recognize the clients, it targets and measures the willingness of the people to pay for the product and service (Cadogan, 2009). The elasticity of demand for the product is also significant for the pricing strategy and there need a consideration as to the effect of pricing on the market. The impact of pricing on demand of the product, on the other hand, may depend on if the product is a luxury or necessity.
Availability of substitutes to the products is a critical condition since if the price has a broad difference with the substitute products, consumers will have to think otherwise (Davidson, & Simonetto, 2005). A complimentary product is another aspect of consideration in the event pricing is for a market where such goods are available and if those goods are sourced from other entities. Therefore, while setting the optimum price of a product, marketing principles must get incorporation into the process, and that will ensure the company generates profit in the process of getting revenue.
Common Strategies and Steps
Pricing relates to all elements of the marketing mix and affects every element. A thorough market research should be conducted for segmentation and positioning to identify the market to target with the product at the price. All the necessary processes undertaken along the product chain must have consideration and the balancing effects of the demand and pricing within the market, and the possible effects noted. Expectation is also a thing to note, with the likely events in the market now and in the future getting suitable attention. Competitors can take any direction in terms of the decision in the event a new product comes to the market and attracts consumers’ attention. The objectives of pricing by the company must reflect its position, the market, and possible reactions or behaviors of the competitors.
Pricing informed by facts from the market search and research and the decision by a firm on the market or clients to target is key (Davidson, & Simonetto, 2005). The information generated from the market must be that which informs pricing appropriately and able to assist in developing pricing structure for a business. The process of price determination is interrelated, does not necessarily need to have specified flow to perform, and therefore has an execution framework that grants consideration in the process of pricing. It is essential that a company has in mind the product positioning and the market it target while deciding on the pricing strategy.
Many people fall into the trap while determining the price for their products, and the approach varies as some decide to add a profit element on the cost of production (Davidson, & Simonetto, 2005). Others set determination on what the target clients are willing to pay as the rest consider competitor pricing as the determinant factor. The approach picked by the producer influences the pricing strategy for the product given consideration to peculiar features of the market. The following are various pricing strategies used at different levels for the products
Penetration Pricing
This strategy aims to penetrate markets to obtain market share by institutions, and the price of a product may change after achieving the intended purpose. For instance, a drug company may decide to introduce a new product in the market with a lower price than those of the competitors and after achieving the share of the segment, the price is then raised. This strategy can work best for drugs with higher efficacy that will give detention to the clients even with the price increase (Jones, 2003).
Skimming Pricing
This strategy applies to higher price setting for products then later lowered slowly to avail the product for the markets majorly to skim the profits in an ordered manner. This strategy is common for periodic technical products that keep on improving.
Competition Pricing
Just as the term suggest, the primary determinant here is the competing prices of competitors and, therefore, a price for the product introduced by the company will match those of the competitors (Bredenkamp, & van 2013).
Product line Pricing
This strategy is where different products within the same line get different prices by the same business. For instance, different products serving the same purpose with different features would go for different prices.
Bundle Pricing
This strategy is used to push sales of products by a firm where offers are availed to those who purchase quantities of the products. The strategy is not a stable pricing for products since the products offered have bundled price that is not for a single product.
Psychological Pricing
This strategy is for setting price targeting the psychology of price for goods by the customers. A customer would go for a quality product that saves a coin and ignore others with just a coin higher and businesses can use this strategy to attract customers.
Premium Pricing
This strategy is common to products considered exclusive in the market to reflect their exclusiveness. To an extent, this approach tries to relate to the class rather than showing the actual cost of the product (Bredenkamp, & van 2013).
Optional Pricing
This is where an institution may decide to sell optional products with an item to boost their revenue and expand their brand.
Cost-Based Pricing
This is where a company decides the price for their product by setting up a markup on the cost of production as a determination of their profit and pricing.
Cost Plus Pricing
Is the situation where a firm has a percentage that it adds to the expense of the final product to come up with the final pricing.
Pricing is commonly consumer and competitor based, and with a focus on the strategies presented in this discussion, a pharmacy benefits manager can have a mix of the policies within. Product line pricing would do best where different drugs are offered at various prices while achieving the desired benefit at the same time (Jones, 2003). A cost-plus pricing is standard in pharmaceutical firms where there is a percentage addition to the total incurred cost. Premium pricing would work best where a class of clients targets exclusive products.